HMRC research shows 90% of temporary staff do pay the right tax, says FCSA

The Freelancer & Contractor Services Association (FCSA) has called into question HMRC's plans to consult on public sector contractors to be taxed as employees and put onto the payroll.

The challenge comes following research reported by the Public Accounts Committee (PAC) to "ensure that temporary staff pay the right tax".

The report quotes research by government departments that sought assurance on the tax affairs of temporary staff. The FCSA says that HMRC received satisfactory assurance from 2,248 out of 2,505 respondents and workers, which implies 90% of temporary workers are compliant from a tax perspective. This contradicts HMRC's assertion that only 10% of contractors who should apply IR35 rules actually do apply those rules as stated by an HMRC senior policy adviser at a recent FCSA compliance seminar.

The latest PAC report also acknowledges that the Government relies on the temporary workforce as a valuable resource to fill a skills gap so FCSA questions why HMRC sees the need to penalise this group of workers when its own research demonstrates high levels of compliance. The impact of putting temporary workers on the payroll will increase regulatory administration and burden, increase costs and effectively discriminate against freelancers working in the public sector.

Julia Kermode, CEO of the FCSA, said, "With such stark contradictory figures in the public domain you could be forgiven for not knowing which to believe. The Public Accounts Committee data is credible and evidence-based, and the results clearly prove 90% compliance. By comparison, there does not appear to be any substantiated data to support HMRC's 10% compliance claim, or at least none that they are able to share publicly.

"I would argue that it is inappropriate to persevere with a consultation which appears to have no supporting evidence, and where the rationale seems fundamentally incorrect. The implications of the proposed changes will be significant, and based on the Government's own findings there seems to be no justification for reform."